On May 30, Bharatiya Janata Party (BJP) leader Narendra Modi took the oath as India’s prime minister, to start his second five-year term. In his first term, there were several ups and down in Nepal-India rela­tions. There are thus concerns over how bilateral relations will evolve in the days ahead. Before discussing this, it would perhaps be worthwhile to remind ourselves of some hiccups in Nepal-India ties during the first terms of Modi and his Nepali coun­terpart, KP Oli.

After the 1990 political change in Nepal, Oli was regarded as a leader close to the Indian establishment. But during the 2015 Indian block­ade, he took a strong anti-blockade stand, with the support of leaders from across the political spectrum as well as a large section of the peo­ple. Even after the blockade end­ed, the relationship between Oli and the Indian political leadership remained strained. Some Indian leaders blamed Oli of playing the old ‘China card’ against India. Oli, mean­while, thought India wanted him out of power at any cost.

In May 2016, then PM Oli report­edly urged President Bidya Devi Bhandari to cancel her scheduled visit to India, which added to the mistrust. According to knowledge­able sources, the visit was cancelled as Oli thought India was trying to ‘topple his government’. Earlier, Nepali Ambassador to India, Deep Kumar Upadhyay, was recalled for allegedly being a part of the same ‘conspiracy’.

When the Oli-led government was toppled, Oli blamed India for cob­bling together the Nepali Congress (NC)-Maoist (Center) alliance. Come the three-tier elections in 2017, Oli and his communist alliance exploit­ed the ‘Indian interference’ to the hilt. And soon after the left alliance won the parliamentary elections, Oli went to Rasuwagadi on the border with China and inspected possible road and rail routes to the northern neighbor, again to India’s displeasure.

Deficit of trust

All these developments only add­ed to the mistrust between Nepal and India. But soon India seemed to have realized the folly of its hardline approach and started appeasing Oli, if only to halt his tilt toward China. Following the parliamentary elec­tions, India dispatched its foreign minister Sushma Swaraj to congratu­late Oli even before he was appoint­ed prime minister.

The climate of cordiality did not last, and Oli’s relationship with India started deteriorating again. First, Nepal cancelled the 2018 joint BIMS­TEC military drills in Pune, India, at the eleventh hour. India saw this as another instance of Oli’s pro-China bias. Of late, the joint Nepal-India Eminent Persons Group (EPG) report on revision of old treaties became a bone of contention, with Modi sup­posedly not all that keen to receive it.

In this backdrop, foreign policy experts believe building trust by tackling pending issues between the two governments should be an immediate priority.

Oli is under domestic pressure to convince India to receive the EPG report and implement it without delay. In its election manifesto, the left alliance had promised to revise the 1950 Peace and Friendship Trea­ty and other ‘unequal’ treaties with India. But it is not going to be easy as India is not in favor of fundamental changes, even though it promises to address Nepal’s grievances.

Dr. Pramod Jaiswal, a senior fellow at the New Delhi-based Institute of Peace and Conflict Studies and a foreign-policy expert, foresees no major changes in India’s Nepal poli­cy. “But the Modi government will be more assertive abroad,” he argues. He adds India still believes Nepal and Bhutan fall under its exclusive sphere of influence and does not brook the presence of any third par­ty here, including China.

 BRI: Elephant in the room

China’s growing presence in Nepal is expected to add to India’s asser­tiveness. India had put pressure on Nepal not to sign the BRI Mem­orandum of Understanding (MoU) in 2017, but to no avail. India is still concerned about Nepal’s selection of projects under the BRI.

“India will not object to small BRI projects in Nepal but build­ing critical infrastructures such as railways, highways and big dams that have security implications will be of concern,” says Jaiswal. India has been maintaining that the proposed Keyrung-Kathmandu rail line should not be extended to Lumbini on the Indian border for security reasons.

Nepal is likely to face more Indian pressure on China. Yes, relations between India and China have improved following the informal Wuhan summit in 2017. But observ­ers say, chances are India and the US will increasingly work together to counteract the BRI and Chinese investment in Nepal.

With Modi’s reelection, there also are concerns about India’s approach to Nepal’s internal pol­itics. In the past year or so, India has maintained a studied silence on this, as interference in Nepal has been one of the main irritants in bilateral relations.

India may not maintain the same level of silence in the days ahead. A seasoned Nepali diplomat who has had extensive contact with the Indians says Madhes-based parties’ demand to amend the constitution will get more vocal. “As in 2015, India, especially its bureaucracy, is likely to stand in favor of those demands, and for greater accom­modation of Madhesi forces within the constitutional framework,” he says. Similarly, there are concerns in New Delhi regarding Oli’s con­centration of political power, par­ticularly in matters of foreign and defense policies.

PM Oli will try his best to remain in power with Indian support, while his party’s co-chair Pushpa Kamal Dahal will also try to worm his way back into Singhadurbar with the support of the same southern neigh­bor. This became evident when the secret power-transfer agreement between Oli and Dahal was leaked to the press on the eve of PM Oli’s latest India visit, perhaps to give the message that Oli is only a caretaker prime minister.

The victory of the Hindu national­ist BJP in the recent Indian elections has also emboldened Hindu forces in Nepal. They know of how New Delhi had put the Nepali leadership under tremendous pressure not to incorporate secularism in the new Nepali charter. In their reckoning, neither the BJP’s nor Modi’s core Hindu agenda has changed.

“Modi cannot impose the Hin­du agenda on Nepal. Yet there are concerns among the BJP leader­ship about forced conversions in Nepal,” says a formally-New Delhi based Nepali diplomat requesting anonymity.

More than this, the health of Nepal-India relations will be deter­mined by India’s willingness (or lack thereof) to resolve old issues like high trade imbalance, inundation in border areas, additional air routes, and border demarcation disputes.

5 Nepal and BRI

APEX Series

EVOLVING NEPAL-CHINA RELATIONS

 1 Post-1950 turning points (April 5)

2 The 2016 transit and transport treaty (April 19)

3 China’s relations with political parties (May 3)

4 Defense ties (May 17)

5 Nepal and BRI (May 31)

  It has been six years since Chinese President Xi Jinping announced his signature foreign policy project, the Belt and Road Initiative (BRI). And although successive Nepali governments have committed to the BRI, Nepal is yet to select specific projects under it.

Three reasons

Observers and political leaders point out at least three reasons for the delay. First, there were frequent government changes from 2013 to 2018. There has been insufficient time for preparations and no particular government has dared to take the risk of selecting projects. A year after Xi Jinping announced the BRI in 2013, the Nepali Congress President Sushil Koirala-led government made a commitment to join it, but other than making promises, there was little progress, until 2017. Toward the end of the tenure of the erstwhile UPCN (Maoist) Chairman Pushpa Kamal Dahal-led government, and a few days before the first BRI conference in Beijing, Nepal and China signed a Memorandum of Understanding (MoU) on 12 May 2017 in Kathmandu. The MoU envisions mutually beneficial cooperation between Nepal and China on the economy, environment, technology, and culture. According to the MoU, major areas of cooperation are policy exchanges, financial integration as well as infrastructure, trade, and people-to-people connectivity.

But soon after the MOU was signed, a change in government in Nepal and its preoccupation with polls stalled progress in selecting BRI projects. Progress has been limited even after the formation last year of a stable government led by Nepal Communist Party Chairman KP Oli, who has blamed other parties for not implementing the deal with China.

Second, in the face of relentless pressure from India and western countries not to join the BRI, successive Nepali governments have found it hard to take firm decisions. In the initial years, India argued that as the China-Pakistan Economic Corridor (CPEC), a flagship BRI project, passes through a disputed territory, it would encroach on India’s sovereignty, to which Nepal should be sensitive.

The third reason is lack of homework on the funding modality and other bureaucratic issues.

Dominant debate

In Nepal, railway has dominated the discourse around the BRI. A high-level government official says instead of centering all efforts on railways, smaller and more feasible projects should have been prioritized. Reportedly, the Chinese side has also suggested that Nepal select viable projects and complete them on time rather than focus on large ones.

Of late, Nepal has tried hard to assure China that it is fully committed to implementing projects under the BRI. In April, President Bidya Devi Bhandari participated in the second Belt and Road summit in Beijing. A joint communique mentions the Nepal-China Trans-Himalayan Multi-dimensional Connectivity Network, including the Nepal-China cross-border railway.

That was the first time a specific Nepali project was mentioned in official BRI documents. But it is still not listed among the deliverables. Only a pre-feasibility study has been completed and the two countries are yet to agree on a feasibility study, which will pave the way for preparing a Detailed Project Report. The pre-feasibility study has identified some topographical difficulties. Amid heated debate in Nepal about the necessity and difficulties of the Keyrung-Kathmandu railway line, Chinese Ambassador to Nepal Hou Yanqi recently said that the construction of a cross-border railway line, though important, would take time. “This is not the kind of project that can be completed in a few years. Owing to the difficult geography, construction is not going to be an easy job,” she said.

Nepal has officially decided that it wants to focus on the connectivity and energy components of the BRI projects. It had earlier selected 36 projects under the BRI, which have now been trimmed down to nine. Almost all political parties agree that Nepal should derive maximum benefit from China’s economic development, mainly through the BRI framework. While Nepal is asking for grants, China says that projects under the BRI should be by and large loan-based.

Loan or grant

But there are fears that a poor country like Nepal may not be able to pay back those loans, which some scholars have described as ‘a debt trap’. There are reports of South Asian countries like Pakistan and Sri Lanka facing debt problems with China, even as there are divergent views within those countries about the issue. Many say the debts are a result of the countries’ internal problems, and not a trap deliberately set up by China.

China maintains that the debt trap narrative is pure propaganda. “There is no instance of a country falling into a debt trap for its participation in the BRI. Quite on the contrary, it is by participating in the BRI that many countries have escaped the trap of no development,” said Ambassador Hou Yanqi.

There also are concerns about transparency in projects under the BRI. Reports of rampant corruption and environmental degradation resulting from the construction of the BRI projects have emerged. China, however, has been vehemently countering such arguments, which was one of the main objectives of the second BRI summit.

“In pursuing Belt and Road cooperation, everything should be done in a transparent way, and we should have zero tolerance for corruption. The Beijing Initiative for Clean Silk Road has been launched, which represents our strong commitment to transparency and clean governance in pursuing Belt and Road cooperation,” Chinese President Xi Jinping said in his statement. Unlike in the past, he also countered arguments about environmental degradation.

“We need to pursue open, green and clean cooperation. The Belt and Road is not an exclusive club; it aims to promote green development. We may launch green infrastructure projects, make green investment and provide green financing to protect the Earth which we all call home,” he said.

Although Foreign Minister Pradip Gyawali has publicly said that negotiations are underway on the investment modality for the BRI projects, there has been minimal discussion on this issue. In fact, issues about funding modalities have been a major obstacle to signing specific projects. While Nepal prefers some grants, China would largely offer loans for BRI projects. Observers seem unsure about the difference between taking a loan from China and from, say, the Asian Development Bank or the World Bank. Experts are of the view that Nepal should conduct a thorough risk analysis before selecting projects under the BRI and accepting loans for them.

 In a meeting with then Prime Minister Girija Prasad Koirala a few weeks after the royal massacre on 1 June 2001, King Gyanendra had said, and I quote Koirala’s personal aide at the time Puranjan Acharya, “Mr. PM, people see you as a corrupt and unpopular leader.” This made Koirala furious, and he replied, “Your majesty, people also accuse you of stealing idols from temples.” This exchange shows the degree of animosity between King Gyanendra and PM Koirala following the royal massacre. Soon after he came back to the prime minister’s residence in Baluwatar from the palace, Koirala asked Acharya to find out the telephone numbers of some Maoist leaders, with whom he wanted to talk about overthrowing King Gyanendra.

Eighteen years ago, Nepal witnessed a horrible royal massacre, which observers say was the beginning of the end of the monarchy and the establishment of a republic. Many political leaders say the issue of republicanism came as a reaction to the massacre and subsequent political developments rather than as a principled position of the political parties.

For the first time in Nepal’s modern history, the 2001 royal massacre brought the monarchy’s weaknesses to the fore, and created confusion among ordinary citizens. King Gyanendra failed to establish cordial relations not only with PM Koirala but also with other political leaders.

The monarch started consolidating power, taking advantage of the unpopularity of the political parties which had been unable to curb corruption and the Maoist insurgency. The parties, on the other hand, were trying to stop the king from taking absolute power. Many political leaders and observers say it was the royal massacre that planted the seed of republicanism in the minds of the general people.

“If the royal massacre had not taken place, the events of 4 October 2002—when King Gyanendra sacked the democratically elected Prime Minister Sher Bahadur Deuba—and of 1 February 2005—when the king imposed an emergency and took absolute power—could have been averted,” says Kamal Thapa, Chair of the Rastriya Prajatantra Party, who at the time worked closely with the king. “But those steps by the king led the parliamentary parties and the Maoist rebels to sign the 12-point understanding that heralded a republican Nepal.”

A different peace deal?

Even before the massacre, when the Maoist rebels had intensified their violent activities across the country, King Birendra had requested political parties and the government to take the insurgency seriously. A few months before the massacre, King Birendra had sent an informal letter to the government, asking it to resolve the Maoist insurgency as soon as possible. At the same time, some royal family members were holding informal talks with the Maoists about initiating a peace process. Many political leaders say the royal massacre took place at a time when King Birendra was preparing to take decisive steps to resolve the Maoist insurgency.

Soon after the massacre, then second-in-command of the Maoist party, Baburam Bhattarai, wrote an op-ed in the Kantipur daily entitled, ‘Let’s not give legitimacy to the beneficiaries of the new Kot Massacre’, which praised King Birendra for having a liberal political ideology and for being a patriot. In that piece, Bhattarai also wrote of how King Birendra had refused to mobilize the army to suppress the Maoist movement and that various national and international forces were unhappy with his soft approach toward the rebels.

"If the royal massacre had not happened, there could have been a different peace deal"

Kamal Thapa

“If the royal massacre had not happened, there could have been a different peace deal,” says Thapa. The Maoists could have accepted a ‘ceremonial’ or ‘cultural’ king. But following the massacre, the Seven Party Alliance and the Maoists agreed to get rid of the monarchy, which became easier because of Gyanendra’s unpopularity and the support from external forces, particularly India.

Before the royal massacre, discourse on the establishment of republicanism was virtually non-existent. Mainstream political parties used to instruct their cadres not to speak in favor of a republic. Only the Maoist rebels and some fringe communist parties talked about abolishing the monarchy. The massacre laid the groundwork for such a discourse among academics, politicians, media workers and the general public alike.

A large section of the public sees Gyanedra’s hand in the massacre—which is why his acceptability as a king plummeted. Although many Nepalis still have a soft corner for the slain King Birendra, public respect for the monarchy as an institution plunged after the massacre.

Missing debate

“A separate peace deal between the palace and the Maoists was a possibility, but minimizing the role of the parliamentary parties was not,” says Nepali Congress leader Gagan Thapa. “The royal massacre served as a decisive moment for the establishment of republicanism in Nepal, because people did not like the idea of Gyanendra continuing the tradition of monarchy,” says Thapa, who became vocal about a republic soon after the massacre. For this, Thapa was publicly criticized by party President Koirala. “Contrary to general perception, I don’t think the Maoist revolt or the 2006 people’s movement laid the foundation for a republic. Rather it was the 2001 palace massacre that did so. There hasn’t been enough discussion about the impact of the massacre on the establishment of a republic in Nepal.”

Soon after the massacre, an NC team led by senior leader Narahari Acharya launched a nation-wide campaign to swing public opinion in favor of republicanism and federalism. NC President Girija Prasad Koirala had strongly objected to the campaign, saying that it went against the party line.

“We were even barred from making speeches. In a real sense, the royal massacre sparked the debate on republicanism,” recalls NC leader Madhu Acharya, a participant of that campaign. “Had it not been for the massacre, I do not think Nepal would have been a republic today. King Gyanedra committed a series of blunders, which further served to create an environment for a republic,” he adds.

Wither investigation?

Around the massacre’s anniversary, political leaders pledge to launch a proper investigation and make the truth public. Many believe such an investigation remains relevant. Former Speaker Taranath Ranabhat, who was a member of the probe committee formed under the leadership of then Chief Justice Kedar Nath Upadhayay soon after the massacre, says a deeper investigation into the palace carnage is necessary.

His probe committee had concluded that Prince Dipendra had murdered his entire family in an intoxicated stupor, but many doubt its veracity.

“The massacre has had negative social repercussions. It made our country weak. Its long-term impact is even bigger than that of the Maoist revolt,” says Ranabhat. “After the reconstruction of infrastructure, people could gradually forget the insurgency, but the wounds of the royal massacre may never heal. It is never too late to seriously investigate the palace massacre, but subsequent governments have not been serious,” says Ranabhat.

But wasn’t that the job of his probe team? “Our job at the time was to undertake an on-the-spot investigation to determine how exactly the event unfolded. We were not mandated to investigate what caused the massacre,” he adds.

It’s been 18 years since the massacre, but it remains a mystery as to why it happened. The country has undergone massive political changes in these years—changes that the massacre influenced, if only indirectly. Many books have been written on it, yet none has been able to convince the skeptical public. Less in doubt are the momentous repercussions of the massacre on the country’s political course.

 Sensing a possible gang-up of senior leaders against him, Prime Minister and co-chairman of the ruling Nepal Communist Party (NCP) KP Oli has of late adopted a policy of placating both senior leaders Pushpa Kamal Dahal and Madhav Kumar Nepal.Besides Dahal and Nepal, other senior leaders Jhala Nath Khanal, Bam Dev Gautam and Narayan Kaji Shrestha are also dissatisfied with what they see as Oli’s monopoly in the party and the government. These four leaders are coming closer to check that monopoly. Though there has been progress in forming intra-party structures and picking leadership of the party’s sister organizations, Oli’s monopoly, his governance failure and the question of the future leadership of the party and the government remain contentious.

On Jan 25, when Oli was in Switzerland to attend the World Economic Forum summit, Nepal, Dahal, Gautam and Shrestha had met to discuss various issues related to the functioning of the party and the government. Oli projected this meeting as a ploy to remove him from power. Now, the same four leaders are trying to mount a collective challenge against Oli’s monopoly. PM Oli of course feels this undercurrent of discontent and has reached out separately to Nepal and Dahal, each of whom has strong command in the party. “PM Oli has started reaching out to senior leaders individually in order to foil a possible alliance against him,” says a NCP leader on condition of anonymity.

Soon after Nepal returned from the second Belt and Road Initiative (BRI) forum in Beijing, Oli had a one-on-one with him for over four hours on a range of issues related to party unification. Such a long meeting was the first of its kind following the unification of two communist parties in 2018. The two leaders discussed the ups and downs in their relationship, mainly after party unification, and agreed to take measures to keep their relations cordial. On internal power-sharing, Shrestha, Gautam and Khanal support leader Nepal in his bargaining with Oli.

There is wider dissatisfaction as well. Says a former Maoist leader who now occupies a senior position in the NCP: “We are barred from speaking in party meetings and instructed not to speak even in the parliament. This is a serious issue.”

"PM Oli has started reaching out to senior leaders individually in order to thwart a possible alliance against him"

An NCP leader

Don’t rock the boat

To clear the air of suspicion, Oli and Dahal are meeting on a regular basis. But that does not mean everything is hunky-dory between them. Perhaps Dahal is aware that Oli is hedging his bets. “As part of his appeasement policy, Oli is assuring support to both Nepal and Dahal as they bid for party chairmanship in the general convention,” as another NCP leader put it. However, mistrust between the two leaders is mounting.

When PM Oli was in Vietnam, Speaker of the federal parliament Krishna Bahadur Mahara, who is close to Dahal, directed the parliament secretariat to remove ‘unparliamentary’ remarks made by the PM before his foreign trip. Leaders close to Oli saw this as a ploy to remove him.

Dahal’s soft approach to main opposition Nepali Congress is also a bone of contention. In recent weeks, in public forums as well as in the parliament, Dahal has been highlighting the need for collaboration between the government and the opposition, while Oli has been strongly criticizing opposition leaders.

Whoever secures Oli’s support is likely to win party chairmanship after Oli gives up the post during the next General Convention. He has reportedly intimated to both Nepal and Dahal that due to his poor health he will not stand for party chairperson again.

Oli is thus using the general convention as a bargaining chip to perpetuate his stronghold in both the party and the government. The recent finalization of district chairs and secretaries had helped bridge the gap between Oli and Nepal.

Bamdev Gautam in particular feels cornered. First, he claims he lost the parliamentary election from his Bardiya-1 constituency in 2017 due to the betrayal of party leaders close to Oli. He had lost to Sanjay Kumar Gautam of the Nepali Congress by 753 votes even though he represented the strong UML-Maoist alliance. Now, Bamdev Gautam is in constant touch with Dahal, Nepal and Shrestha.

Last year, co-chair Prachanda had floated a proposal to get Gautam elected to the federal parliament by asking lawmaker Ram Bir Manandhar, elected from Kathmandu-7, to resign. Oli, however, rejected Dahal’s proposal, which further widened his rift with Gautam. Even before party unification, Oli used to criticize Gautam as being unnecessarily close to the Maoist party. Of late, hinting at Oli, Gautam has been speaking of systematic efforts at ending his political career.

No presidential pardon

Following the three-tier elections, Jhalanath Khanal had claimed the post of the country’s president in 2018. Oli opposed it, while Madhav Kumar Nepal stood neither in favor nor against Khanal’s candidacy. Of late, he is leaning toward the Nepal camp. But Khanal, a former prime minister, does not have much hold on the party organization, where power is shared between Oli, Nepal and Dahal.

Another senior leader Narayan Kaji Shrestha has also been criticizing the federal government’s working style. Last August, he resigned as party spokesperson following disagreements with PM Oli over the demands of Dr Govinda KC. Later, Dahal and Oli urged him to continue as spokesperson. Nepal and Shrestha are on the same page on several issues; they had a cordial relationship even before the unification. “Some of my ideas related to party- and government-functioning remain unaddressed,” says Shrestha, who has been urging top leaders not to engage in factional politics.

Again, from the outside, Dahal and Oli seem to have a cordial relationship. But the rift between them is widening, especially over federalism. Dahal is displeased with the centralization of power and resources under PM Oli’s watch.

Maoist leaders meanwhile complain of Oli’s interference in ministries led by former Maoist leaders. A few months ago, the Home Ministry had come up with a proposal to regulate NGOs but the PM got the Home Secretary to halt it. Recently, political appointments in the Alternative Energy Promotion Center, which falls under the Ministry of Energy under Barsha Man Pun, became a bone of contention. Oli rejected Dahal’s recommendation and made one himself. Dahal and Oli also differ on issues related to transitional justice and how they view the Maoist insurgency.

The former Maoist leaders want the ‘people’s war’ recognized in the official party charter. Yet the former UML leaders, and particularly those close to Oli, now say there should be no deviation from the UML line of ‘people’s multiparty democracy’. This has been another source of the Oli-Dahal rift.

The power tussle within the NCP is likely to grow as the General Convention draws closer. While other senior leaders want to hold the General Convention as soon as possible, Oli is not in the mood. When the party was united a year ago, the convention was slated to be held within two years. But it is difficult, as the central level convention cannot take place before the local and provincial ones.

Shifting sands

Dahal wants to hold the convention soon because next year Oli will complete his two and half years as prime minister—when, as per an agreement, Oli has to hand over either the party’s leadership or the prime minister’s post to Dahal.

“We will think of the General Convention only after we settle organizational issues,” says spokesperson Shrestha. But speaking at a program on May 6, Dahal said the party leadership was obliged to hold the General Convention in the next seven to eight months. This means Dahal wants to hold the convention within one year to ensure he gets either the party chairmanship or the prime ministership.

What cannot be ruled out either is an agreement between Nepal and Dahal over party chairmanship and prime ministership by sidelining Oli completely. If Dahal and Nepal come together, Oli will be in a minority both in the parliament and in party structures. Of the three clear factions led by Dahal, Oli and Nepal, Dahal has greater numbers than does either Oli or Nepal. Sources say if Oli continues with his monopoly and refuses to hand over power even after a year, other senior leaders will start ganging up against him.

“I see the possibility of big changes in internal alliances. Dahal, Nepal, Khanal and Gautam have all suffered at Oli’s hands,” said political analyst Shyam Shrestha in a recent interview with APEX. “If these four come together, there would be a change in power balance in favor of this alliance.”

Despite some differences over the formation of intra-party structures and sister organizations, the disgruntled factions agree on the need for an early General Convention. Otherwise Oli could indefinitely extend his tenure as he has vowed to quit only after the convention.

According to party insiders, Dahal knows Oli won’t easily transfer power to him as per the gentlemen’s agreement. As such he has already started reaching out to leaders who are unhappy with Oli. The power tussle inside the ruling party is set to escalate.

4 Defense ties

APEX Series

EVOLVING NEPAL-CHINA RELATIONS

  1 Post-1950 turning points (April 5)

2 The 2016 transit and transport treaty (April 19)

3 China’s relations with political parties (May 3)

4 Defense ties (May 17)

5 Nepal and BRI (May 31)

 As a part of his policy of expanding the scope of Nepal’s foreign policy, King Mahendra, particularly after the 1962 India-China war, started reaching out to western countries for military assistance. Western countries, mainly the US and the UK, responded positively to Mahendra’s request for military assistance, and in 1964, Nepal signed an agreement with the US, under which the Americans agreed to provide logistical support to the then Royal Nepal Army. Subsequently, the UK also started providing some military assistance to Nepal. India was already a major defense supplier to Nepal. Since 1950, Nepal and India have also been awarding the Army chiefs of each other the honorary rank of General in recognition of the harmonious relationship between the two armies.

Three countries—India, the US and the UK—have long been Nepal’s major defense partners, both in terms of grant and sale, and have helped meet the requirements of the Nepal Army (NA). But in the last three decades, there have been many changes in Nepal’s defense cooperation. China has emerged as another major defense partner.

Recent engagement between the two countries suggest China is all set to overtake Nepal’s traditional defense partners. Observers say these changes should be viewed both from domestic and international angles. First, Nepal’s internal political changes are conducive to enhancing ties with China on all fronts, including defense collaboration. Second, China has taken assertive steps to expand its military influence in neighboring countries.

Since the establishment of diplomatic relations between Nepal and China in 1955, the armies of the two countries have had cordial ties. Although Nepal and China signed an understanding on military cooperation in 1988, bilateral defense cooperation gained momentum mainly after King Gyanendra’s royal takeover in 2005, and particularly after the abolition of the monarchy in 2008. For instance, on 24 Oct 2005, China pledged military assistance worth $989,000 to Nepal, primarily to curb the Maoist insurgency.

Between 2001 and 2005, the Nepal government also purchased military hardware from India, the US, the UK and Belgium to fight the rebels. But after the 2005 royal takeover, India, the US and the UK suspended their military aid to Nepal, demanding the restoration of democracy. The NA faced a shortage of military hardware to be sent to its peace missions abroad.

In order to address its security interest in Nepal after the abolition of the monarchy, China adopted a policy of deepening collaboration with Nepal’s security forces. Officials from China’s People’s Liberation Army (PLA) started cultivating relations with Nepal’s defense minister and army chief—something which continues to date. In June 2017, China handed over the National Armed Police Force Academy, which it built, to the Nepal government. In the handover ceremony, then Chinese Ambassador to Nepal Yu Hong said, “China is always willing to conduct pragmatic cooperation with Nepal in the field of talents, development and national security.”

Even before 1990, both Nepal and China had made efforts to enhance military collaboration, but those moves were opposed by India. In 1989, Nepal bought anti-aircraft guns, medium range SSM, and AK- 47 rifles from China—much to the chagrin of India, which argued that the purchase goes against the spirit of the 1950 Peace and Friendship Treaty. After the restoration of democracy in 1990, during the visit of interim Prime Minister Krishna Prasad Bhattarai to New Delhi, Indian officials asked him why the Nepal government purchased weapons from China. “Because we got them cheap and India did not meet all our requirements,” Bhattarai reportedly told the Indian officials.

After 1990, the defense collaboration between Nepal and China did not gain much momentum. However, Nepal continued to convince India that it has the right to purchase military hardware from third countries. Along with regular military assistance from China, it would be worthwhile to discuss some vital developments that contributed to increased military cooperation between the two countries in the past decade.

After the first Constituent Assembly (CA) elections in 2008, then Defense Minister Ram Bahadur Thapa signed an agreement in December 2008 with China on military assistance worth $ 2.6 million for the modernization of the NA. After that, Chinese military officials, including the PLA chief, have continued to visit Kathmandu. A close analysis of trends shows that soon after the formation of a new government in Nepal, either China invites our defense minister for a visit or high level Chinese officials come to Kathmandu. In the case of the NA chief, there is a tradition of visiting India first after assuming office.

Another turning point, according to observers, is the Indian blockade in 2015-16. First, the PLA heavily supported Nepal’s rescue and recovery efforts. Second, political parties have reached a consensus that collaboration with China in defense, like in other sectors, should be enhanced.

Two vital developments in 2017 deepened the military cooperation between Nepal and China. After a long hiatus, Chinese Defense Minister and State Councilor Chang Wanquan paid a three-day visit to Kathmandu in March. He announced a grant assistance of $ 32.3 million to Nepal, to be spent on building Nepal’s capacity to deal with natural calamities and purchasing equipment for Nepali peacekeepers deployed in conflict-affected areas.

In the same year, the armies of the two countries conducted the first-ever joint military drill, paving the way for further collaboration. After the formation of the new government led by Nepal Communist Party (NCP) Chair KP Sharma Oli, Deputy Prime Minister and Minister for Foreign Affairs Ishwor Pokhrel visited China in October 2018. During the visit, Pokhrel and Chinese State Councilor and Defense Minister Wei Fenghe signed a Memorandum of Understanding (MoU). “Minister Pokhrel mentioned the importance of military co-operation in military training, hardware in humanitarian and disaster management, and medical equipment and peace-keeping operations, and requested for Chinese support in establishing Defense University in Nepal,” reads a press release issued by the Nepali Embassy in Beijing after the visit. As per the agreement, China increased its military support by 50 percent to strengthen Nepal Army’s capability in disaster management and to better equip Nepal’s UN peacekeeping missions. China also announced an assistance worth RMB 150 million (Rs 2.53 billion) for the NA for the next five years. Nepali army officials say the relationship between the two armies is cordial.

“The Chinese side always respects Nepal’s sovereignty, which has helped make relations cordial,” says former NA Spokesperson Brigadier General Deepak Gurung. For instance, even when Tibetan rebels were conducting raids inside Tibet from Mustang back in the 1950s and 60s, the Chinese PLA had asked Nepali security forces to take care of the problem rather than get involved itself.

Today’s collaboration between the NA and the PLA, Gurung says, should be seen in the larger context of China opening up and its assertive foreign policy. “There have been many changes, mainly after the restoration of democracy in 1990, and also after 2008,” he told APEX.

Observers say growing Chinese military influence should be understood in the larger context of the Science of Military Strategy unveiled by China in 2013, which talks about developing a modern and capable military. “China has since been assertive in all areas of foreign policy, including military diplomacy,” says Deepak Prakash Bhatta, a military affairs expert.

Vital milestones

• Bilateral military cooperation started in 1988

• Nepal purchased military hardware such anti-aircraft guns, medium range SSM, and AK- 47 rifles among others in 1989

• Soon after the royal takeover in 2005, China pledged military assistance of $989,000 to Nepal to fight the Maoist insurgency

• In December 2008, Nepal and China signed an agreement on military assis­tance worth $ 2.6 million for the modern­ization of the Nepal Army

• In 2009, China agreed to provide military aid worth 20.8 million Yuan (approxi­mately Rs 220 million)

• In 2011, during his visit to Nepal, then Chi­nese Army Chief Chen Bingde announced military aid of $7.7 million for the Nepal Army

• In June 2013, Nepal and China agreed to construct the National Armed Police Force Academy during Chinese State Councilor Yang Jiechi’s visit to Kathmandu

• In 2017, China pledged an assistance of $32.3 million to the Nepal Army

• In 2017, Nepal and China began the first ever joint military drill, which was a major turning point in bilateral defense cooper­ation• In October 2018, China announced to pro­vide an assistance worth RMB 150 million (Rs 2.53 billion) to the Nepal Army for the next five years  

 Kathmandu—Naya Shakti Party, Nepal led by Baburam Bhattarai and the Federal Socialist Party-Nepal (FSPN) led by Upendra Yadav have merged, giving birth to the Samajbadi Party Nepal (‘Socialist Party Nepal’), which aspires to emerge as an ‘alternative political force’.In recent years, it has become fashionable for new political parties to claim they are an alternative force. But their success remains limited, at best. For Yadav, the merger is an attempt to emerge as a national leader from his current status as a regional leader. For Bhattarai, it is simply a survival strategy. The merger is unlikely to have an immediate impact on national politics, but observers say it could lead to new political alignments in the days ahead.

Ethnic plank

The Samajbadi Party Nepal seems all set to employ the ethnic agenda as a major political tool. The party has proposed the current seven federal provinces be changed to 10+1, in line with the 2012 report of the High Level State Restructuring Commission, which had recommended delineating the provinces in accordance with the settlements of various ethnicities. (Some members of the commission had rejected this proposal and had submitted a separate report, arguing that the number of provinces should not exceed six.) Federalism based on ethnicity was a prominent demand during first phase of constitution drafting, but it lost charm after the Nepali Congress and the CPN-UML emerged as the two biggest parties in the second CA elections in November 2013.

Of the 11 points in the unification document of the Samajbadi Party Nepal, point number eight, nine and 10 are related to ethnic, marginalized and backward communities. “But the demand for increasing the number of provinces will invite conflict, because no current provincial government is ready to lose its territory,” says Rajesh Ahiraj, a Madhes analyst. Janajati organizations, however, could support the new party. Co-chair of the ruling Nepal Communist Party (NCP), Pushpa Kamal Dahal, still has a soft corner for the demands of the Janajati organizations.

Longevity of unification

Observers are skeptical about the sustainability of the new party as the two leaders have separate political and ideological backgrounds. However, some Madhes watchers say the unity could endure as Bhattarai and Yadav are unlikely to have a clash of interests. “Past experiences show parties split due to differences while forming or joining a government. Bhattarai is a former prime minister, so he would not accept a ministerial position, which gives Yadav the freedom to join a government until the new party reaches the position of forming a new government,” argues political analyst Chandra Kishore. “On power-sharing, Yadav is in a comfortable position. Bhattarai is a prominent national-level leader, which would help Yadav expand his organizational base,” he adds. If Bhattarai and Yadav get along, no other leader is likely to challenge them in the new party. Whether the unification lasts hinges on this crucial factor.

Question of acceptability

In the new party, there are three top leaders—Baburam Bhattarai, Upendra Yadav and Ashok Rai—who belong to separate ethnic constituencies, respectively the Khas Arya community, the Madhesi community and the hill ethnic community.

In the past as well, these leaders had tried to increase their acceptability in communities other than their own. Six days after the promulgation of the new constitution in September 2015, senior Maoist leader Baburam Bhattarai severed ties with the then UCPN (Maoist) led by Pushpa Kamal Dahal. He also resigned as a member of parliament. He then tried to win over Madhesi sentiments by supporting the movement launched by the Madhes-based parties against the constitution. Bhattarai formed a new party in 2016, arguing that the Maoist ideology was no longer relevant to Nepal.

In June 2015, the Upendra Yadav-led Madhesi Janadhikar Forum and the Ashok Rai-led Federal Socialist Party announced unification, giving birth to the Federal Socialist Party Forum Nepal (FSPN). Rai was a senior CPN-UML leader who had left the party arguing that it would not advance the Janajati agenda. The merger reflected Yadav’s ‘look hill policy’ aimed at expanding his support base.

So this is the second attempt at party expansion for both Bhattarai and Yadav. After the Madhes movement, the Madhesi people showed some sympathy for Bhattarai, but it is still difficult for him to get their full support. Will Bhattarai dare contest an election from a Madhes constituency in the next election? Or Yadav from a hill constituency for that matter? Observers doubt it. Despite the earlier unification with the Rai-led party, Yadav did not recommend any Madhesi leader from his party to fight elections from a hill constituency. But with the recent unification, Yadav has tried to project himself as a national—and not just a Madhesi—leader.

 It seems Bhattarai and Yadav agreed to merge with the next election in mind

Impact on national politics

The federal and provincial elections held in December 2017 were a litmus test for both the Bhattarai- and Yadav-led parties. In the federal parliament, the Yadav-led FSPN secured 16 seats, all from Madhes. The party did not do well in hill constituencies. Altogether, the new party has 17 seats in the federal parliament, which makes it the third biggest political force after the NCP and the NC.

The Bhattarai-led Naya Shakti faced a humiliating defeat in the elections, with Bhattarai its only contestant to win a seat in the federal parliament. Even that victory was made possible because of his alliance with the Nepali Congress. Some Maoist leaders who supported Bhattarai earlier have left him. Some former government and security officials who had joined Naya Shakti have also severed ties expressing dissatisfaction with Bhattarai’s working style.

Under the proportional representation category for the federal parliament, the FSPN and Naya Shakti had secured 470,201 and 81,837 votes respectively. Naya Shakti could not get the status of a national party.

Now the Samajbadi Party Nepal heads the government in Province 2; and it is unlikely to quit either the provincial or the federal government immediately. The Oli-led federal government will lose its two-third majority if the new party leaves it, but it will still enjoy a comfortable majority. It seems Bhattarai and Yadav agreed on unification with the next election in mind. In the meantime, the party’s priority is to press for a constitution amendment.

RJPN: Alliance or unity?

While Yadav and Bhattarai were discussing unification, the Rastriya Janata Party Nepal (RJPN) had also expressed an interest in merging with the new party. Both Bhattarai and Yadav decided against it. According to leaders from both the sides, although the chances of unification with the RJPN are slim because of leadership issues, there could very well be an alliance to put pressure on the government to amend the constitution. The RJPN, which recently withdrew its support to the Oli-led government, is preparing to hit the streets for a constitution amendment.

Closer to the ruling party?

The new party has warned that it would quit the federal government if its demand for a constitution amendment is not addressed. Yadav continues to hold the portfolio of deputy prime minister in the federal government. According to sources, NCP Co-chair Pushpa Kamal Dahal has urged Yadav not to leave. “The unification could also be a part of Dahal’s ongoing efforts to become prime minister by ousting Oli, but by keeping the current parliamentary setup intact,” says a ruling party leader requesting anonymity. Analysts believe that if the Samajbadi Party Nepal and the RJPN together stage street protests to press for a constitution amendment, it would be easier for Dahal to wrest the prime minister’s chair from Oli.

3 China’s relations with political parties

 APEX Series

EVOLVING NEPAL-CHINA RELATIONS

  1 Post-1950 turning points (April 5)

2 The 2016 transit and transport treaty (April 19)

3 China’s relations with political parties (May 3)

4 Defense ties (May 17)

5 Nepal and BRI (May 31)

In the first week of 2019, a 15-member team of the ruling Nepal Communist Party (NCP) led by Dev Gurung visited China at the invitation of the Communist Party of China (CPC). According to Gurung, Chinese leaders the Nepali delegation met underlined the need for strengthening the relationship between the two communist parties and suggested further consolidation of communist forces in Nepal. Chi­nese leaders also shared their views on ways to win the hearts and minds of people and to strengthen a party’s organizational base. It was one of several such visits by NCP leaders.

In the past one year, senior ruling communist party leader Madhav Kumar Nepal and Spokesperson Narayan Kaji Shrestha have each visited China twice. Co-chair Pushpa Kamal Dahal went to China last Sep­tember. Former Prime Minister Jhala Nath Khanal, who was in Beijing during the unification between the erstwhile CPN-UML and CPN (Maoist Center), has visited China twice after the unification.

It’s not just senior politicians who get invited; leaders of all levels in the party hierarchy have gone. Two pro­vincial chief ministers—Mahendra Bahadur Shahi (Karnali) and Prithvi Subba Gurung (Gandaki)—have also gone to China recently. In the sec­ond week of April, NCP General Secretary Bishnu Poudel, along with some other leaders from his party, made the trip.

China seems keen on welcoming NCP leaders particularly after the 2017 party unification. This may have more to do with the fact that the NCP is the ruling party than that it is a communist force. But leaders from other parties are also invited by the CPC, which shows China’s willingness to enhance rela­tions across the political spectrum in Nepal. China seems to have adopted a policy of working closely with whichever party comes to power, never mind their ideology.

Observers say Nepal’s new status as a republic prompted China to expand its relationship with various political parties

Two-way traffic

It’s not just Nepali leaders who go to China; visits to Nepal by Chinese leaders have also intensified over the past one decade. Accord­ing to observers, Nepal’s new status as a repub­lic prompted China to expand its relationship with political parties in order to secure its interests in the absence of a permanent power like the monarchy. They say frequent gov­ernment changes in Nepal led China to reach out to a wide range of political parties. All Nepali mainstream par­ties today express their firm commitment to ‘One China’, which is a major concern for the northern neighbor.

After the first demo­cratic movement in 1990, the Chinese government adopted a policy of main­taining close ties with the monarchy, the Congress and the UML, the three main political actors in Nepal at the time. After the second democratic movement in 2006, China slightly changed its policy and the CPC started cultivating ties with a growing number of political parties. A recent trend is that the CPC, rather than the Chinese government, is actively engaged in building ties with Nepali political forces.

Historically, China has not taken much inter­est in Nepal’s domestic affairs. But that seems to be changing. China had expressed its con­cern over Nepal’s fed­eral setup during the constitution-drafting process. It was of the view that Nepal should not have too many provinces and they should not be delineated based on ethnicity. In 2013, when senior Maoist leader Mohan Baidya revolted against Pra­chanda and formed a separate party, China had reportedly requested the two sides not to split, and following the split, repeatedly suggested that they unite.

More recently, leaders from different parties claim China was actively engaged in convincing the erstwhile CPN (Maoist Center) not to quit the KP Oli-led government in 2015-16. Chinese dissatisfaction over the toppling of that government had been reflected in some Chinese newspapers, including the Global Times. Similarly, China had report­edly advised the erstwhile UML and Maoists to build an electoral alliance and ultimately unite.

NC, NCP, what’s the difference?

There is a general perception that communist parties of Nepal are closer to China, and other demo­cratic forces to India. But leaders of the main opposition Nepali Con­gress say it’s a faulty perception and that they too have a strong and cordial relationship with the Com­munist Party of China.

The 1950 manifesto of the Con­gress had unequivocally supported the Chinese revolution and the dawn of the People’s Republic of China. Relations between the NC and the CPC were strengthened when then prime minister and party president BP Koirala visited China in 1960 and met Chairman Mao. “The Nepali Congress has firmly backed One-China policy since the 1950s and has always had a cordial relationship with the CPC,” says Ram Chandra Pokharel, a NC leader and former lawmaker who closely follows developments in NC-CPC ties. He was also a part of a 15-mem­ber Congress team who had gone to China in 2016 at the invitation of the CPC.

In 2016, media reports about Con­gress President Sher Bahadur Deuba sharing a dais with representatives of the Tibetan government in exile in Goa, India had generated some mistrust between the NC and the CPC. Deuba tried to make amends by telling the Chinese that he did not meet any representatives of the Dalai Lama and reiterating his party’s unequivocal commitment to One-China.

China has cultivated strong ties with Madhes-based parties as well. “China is open to work­ing with any political dispensa­tion in Kathmandu as long as it is prepared to take strong action against political activities of the Tibetan refugees. Significantly, China has also begun taking an active interest in Tarai politics,” writes Nihar Nayak of the IDSA, a New Delhi-based think tank, in his book Strategic Himalayas.

Plain projects

When Nepal promulgated a new constitution in September 2015, India backed the demands of the Madhes-based parties, which were protesting fiercely against the stat­ute. But China welcomed the con­stitution and suggested that Nepal resolve the issues raised by the Mad­hesi forces through dialogue. In March 2016, Madhes-based parties submitted a letter to Chinese Ambas­sador in Kathmandu Wu Chunta in order to draw Beijing’s attention to their demands. When China wel­comed Nepal’s constitution, some cadres of the Madhesi parties tried to burn Chinese flags. While Upen­dra Yadav strongly denounced such acts, other Madhes-based parties were silent.

The CPC is in touch with lead­ers of the Federal Socialist Par­ty-Nepal, which Yadav leads. FSPN leaders frequently visit China at the invitation of the CPC. However, the CPC has only minimal contact with other Madhes-based parties, including the Rastriya Janata Party Nepal (RJPN). “It seems China engages with leaders of other Mad­hes-based parties, but not much with us,” says RJPN Secretary Kes­hav Jha. He adds that China, of late, has reached out to Madhesi people with various developmental projects and programs.

 Nearly four years after the promulgation of the consti­tution, the National Natural Resources and Fiscal Commission (NNRFC), a constitutional body man­dated to ensure just and equitable distribution of natural and fiscal resources among the three tiers of government, has started its work after the appointment of former secretary Balananda Poudel as its chairman last month.

Earlier, the NNFRC Secretariat consisting only of government offi­cials had conducted some prepara­tory work but the commission was largely dysfunctional in the absence of a chairperson. The government is yet to appoint the other four mem­bers of the commission, which is also likely to affect its work. After taking charge of the commission, Poudel has started consulting with stakeholders to prepare a work plan that would guide the commission’s short- and long-term tasks.

“It has been a month since I joined. In this time we have prepared a draft of a law relating to natural resources, and are working on both our short-and long-term goals,” says Poudel. He adds that his office is also working out a strategy for effective communi­cation with federal, provincial and local governments.

 Major duties of the commission as identified by the constitution and law

• To make recommendations on equalization grants to be pro­vided to the provincial and local governments out of the federal consolidated fund.

• To carry out research and define parameters for condi­tional grants to be provided to the provincial and local gov­ernments in accordance with national policies and programs, norms, standards, and the state of infrastructures.

• To determine a detailed basis and modality for the distribu­tion of revenue between the provincial and local govern­ments out of the state consoli­dated fund.

• To recommend measures to meet expenditures of the feder­al, provincial and local govern­ments, and to reform revenue collection mechanisms.

• To analyze macro-economic indicators and recommend ceilings on internal loans that the federal, provincial and local governments can take out.

• To review the basis for revenue distribution between the feder­al and provincial governments and recommend revisions.

• To set bases for the determi­nation of shares of the feder­al, provincial and local gov­ernments in investments and returns and in the mobilization of natural resources.

• To conduct research on pos­sible disputes between the federation and the provinces, between provinces, between a province and a local level, and between local levels, and make suggestions on ways to prevent such disputes.

• To carry out environmental impact assessment required in the course of distribution of natural resources, and make recommendations to the government.

Underpinning federalism

The commission’s role is crucial in the transformation of the old unitary state structure into a functional fed­eral one. While the unitary system had the provision of distributing projects from top to bottom, funds would be transferred from one level of government to another under the federal model. An effective NNRFC can significantly reduce the chances of disputes among the three levels of government—federal, provincial and local. Most such disputes are over natural resources and revenue distri­bution; and the commission is man­dated to make recommendations on revenue distribution, equalization grant, conditional grant, internal borrowing and sharing of natural resources among the three govern­ments. An equitable and fair shar­ing of natural and fiscal resources among the three governments is a challenge, but is a prerequisite for the effective functioning of the new federal model.

As the commission is a constitu­tional body, its recommendations are binding on all three levels of government. The commission can essentially force any level of government to imple­ment its recommendations. Addi­tionally, the role of the commission is akin to that of ‘a referee’ when it comes to implementing fiscal federalism. If the NNRFC functions effectively, it will enable all levels of government to make informed and evidence-based decisions.

The constitution has made pro­visions regarding the distribution of revenue among the federal, pro­vincial and local level entities. Taxes such as custom duty, excise duty, Value Added Tax (VAT) and income tax are under the federal government’s jurisdic­tion, while house and land registration fees, motor vehicle tax, agro-income tax and local taxes are within the remit of the provin­cial and local govern­ments.

Three levels of funding

There are clear fiscal gaps at the provincial and local levels as they have to deliver services that require much more money than what they can collect in revenue. As such, the central gov­ernment has to make fiscal transfers to the provincial and local lev­els to bridge the gaps. Similarly, the center needs to mobilize the provincial and local lev­els to implement com­prehensive national pol­icies and programs. This is where the NNRFC comes in.

While recommending revenue distribution, the commission will have to take into account certain criteria and frameworks such as population and demographic fac­tors, area, human development index, expenditure needs, revenue collection efforts, infrastructure development, etc.

The commission is working on forming four thematic divisions, namely Revenue Sharing Division, Research and Management Division, Sharing of Natural Resources Divi­sion, and Grant and Loan Manage­ment Division. The Intergovernmen­tal Fiscal Management Act (2017) is already there to manage matters related to revenue rights, revenue sharing, budget management, pub­lic expenditure and fiscal discipline among the federal, provincial and local level entities.

This Act has identified issues such as revenue and expenditure respon­sibilities, intergovernmental fiscal transfers and internal loans provin­cial and local entities can take out as the important elements of fiscal federalism. Last year, the commis­sion recommended the government on revenue sharing and fiscal equal­ization grants for the fiscal 2018-19— before Poudel joined it.

Poudel says his immediate prior­ity is to settle issues related to the distribution of revenues and royal­ties collected from natural resourc­es. Observers say the commission needs collaboration from all three tiers of governments to function effectively.